Much has been said about the drop in volatility that we’ve seen for equities, but we’ve also seen a big drop in vol for oil. You can see the tight sideways pattern that oil has formed over the last few months in the chart below:
Over the last 50 trading days, oil has averaged an absolute daily change of +/-1.2%. That’s significantly lower than where things stood last year at this time. Below is a chart showing this reading on a rolling basis going back to 1983. During oil’s big price collapse from late 2014 through early 2016, volatility spiked significantly. In early 2016 when prices were about to bottom, oil had averaged a daily move of nearly +/-4% over the prior 50 trading days.
While the current reading of +/-1.2% is down sharply compared to a year ago, it’s still not close to the lows seen just prior to the peak for oil prices in late 2014. Back then oil was seeing daily moves of just over half a percent. Talk about a calm before the storm.